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August 17 2010

17:30

Summer of (Groupon) love: Social discounting helps magazines sell subscriptions on the cheap

With Groupon growing by the day, the overwhelmed merchant is part of its lore. The Boston helicop-tour that sold 2,600 rides in four hours. The Seattle guitar teacher booked through New Year’s. The Chicago nail salon keeping women flipping through magazines waiting for their cheap mani-pedis. So when magazines go Groupon in an attempt to sell print subscriptions, are they overwhelmed, too?

“No. We’ve been able to accommodate those guys just fine,” says Daniel Brogan, publisher of the Denver monthly 5280.

5280 recently sold 4,715 subscriptions in one day, the biggest success in a wave of city and regional magazines offering group-discounted subscriptions this summer. Groupon’s social-coupon service provides a more direct connection between merchant and consumer than display ads ever could. And the numbers coming out of that connection are impressive. Since early June, 31 different titles have attracted some 32,851 new subscribers. (And that’s just among magazines; newspapers — the Chicago Tribune and Washington Post among them — have also been dipping their toes into Groupon.)

“The promotion was immediately profitable for the magazine,” explains Ken Sheldon, New York magazine’s head of consumer marketing — who took the first available Groupon slot in late June and promptly sold 2,536 subscriptions. Groupon-ing is relatively low-risk: Readers pay up-front (no chasing down Bill Me Laters), and publishers don’t have to put down cash to secure a sales date – all good economics, says Sheldon.

Good economics, though, aren’t perfect economics. Subscriptions come at a deep discount for consumers — “40 percent doesn’t speak to someone the way 50 does,” notes Groupon’s Julie Mossler — meaning, of course, less revenue for publishers. On top of that, the Chicago-based startup generally takes half of the revenue from each deal, meaning that New York’s $33,000 in Grouponed sales, for example, translates to $16,500 in revenue for the magazine.

Hooking them, keeping them

The main benefit of group-purchased subscriptions, for publishers, is the potential for subscriber retention: Get ‘em now with the Groupon rate, get ‘em next year at full price. Groupon boasts deep, vertical subscription lists of young, proven consumers who are buying real-world goods and services — “as much as Groupon is an online thing, I don’t see this as an online audience,” notes Lute Harmon, Jr., publisher of Cleveland magazine — and the networks are large. In Milwaukee, where the service launched in February, Groupon boasts a database of 77,000 potential subscribers; Dallas’s database has 215,000; and New York’s has 350,000 — growing, of late, by 2,000 people each week.

The networks’ demographics are appealing, too — particularly for publishers seeking to corral their next generation of readers. The majority of Groupon’s audience is in the 29-to-33 age range; 77 percent are women, and 75 percent are fully employed. “In some ways, they’re the perfect audience for a city magazine,” 5280’s Brogan says; the overlap between Groupon members and city magazine readers is generally a wide one.

Take Ro Hawthorne, a 32-year-old corporate public relations and marketing manager — and, thanks to Groupon, a new subscriber to Dallas’s monthly D Magazine. Hawthorne has lived in Dallas for seven years, but never subscribed to D Mag. She’d purchase the pub’s twice-yearly “Best of” issues to save as references for local places of interest, she told me, and otherwise would read it for free — at the hair salon. The D Magazine Groupon offer that came her way in late July, though — $9 for a 12-issue subscription — was appealing enough to make Hawthorne one of the outlet’s 3,214 new subscribers. As she explained: “It was under $10. That helps a lot.”

While snagging new subscribers with Groupon discounts is relatively easy, ensuring that subscribers come back — and that they pay full price on their return — is not. The subscription-rate slashing that takes place on Groupon’s roving newsstand, though, puts even more pressure on the need for renewals.

“If all we get is a one-time subscription, it wouldn’t be that great a deal for us. It wouldn’t be a deal at all,” notes Dan Crutcher, publisher of Louisville Magazine. During its Groupon promotion in early March, the magazine sold 258 subscriptions. (Louisville has 21,000 paying subscribers, Crutcher told me, so while the Groupon achievement is not plaque-worthy, it did mean that one day’s promotion was five times more effective than the roughly 50 subs initiated each month on loumag.com.) Crutcher says he’ll be satisfied if half his Groupies renew — and ecstatic if 70 or 80 percent (the typical renewal rate for longtime customers) make an encore purchase. Both are optimistic goals, though: In general, the newer the subscribers, the less likely they are to renew.

Bundling the discounts

Then there’s the question of balancing the Groupon audience with the rest of a magazine’s subscriber base. Lawrence W., for example, presumably a loyal subscriber to 5280, took offense at the deeply discounted rate that he wasn’t privy to. (“Guess I will let my subscription expire and try to get in on the next deal,” he wrote on the mag’s Groupon deal discussion board.) One way to combat that kind of resentment — and customers’ coming to see deep discounts as a norm rather than a rare occurrence — is, ironically, to limit the viral potential of Groupon deals. 5280, for example, kept its $7 Groupon deal away from fans on Facebook and Twitter to limit the overall exposure of its bargain-basement subscription. Cleveland Magazine, similarly, relies on its Groupon community remaining somewhat isolated from its traditional subscriber base. “If it’s really a separate group,” Harmon points out, “it’s easier to rationalize giving them a different price.”

Mags are also experimenting with packaging Groupon deals along with other valuable perks – just as they’re experimenting more broadly with package deals as a way of selling subscriptions. Cleveland, for example, packages tickets for its Best of Cleveland party at the Rock and Roll Hall of Fame along with magazine sales, with $15 from each $40 ticket going to the price of a subscription. And Milwaukee magazine recently paired a year’s subscription with two tickets to the city’s Lakefront Festival of Arts, where the mag and its publishing company Quad/Graphics were presenting sponsors. For $18, almost 400 customers took advantage of the package deal.

Going long

The Daily Deals facilitated by Groupon are proving to be a good way for city and regional magazines to inject numbers into their rate base. For national titles, though, the Groupon road hasn’t been so smooth. Newsweek floundered in Seattle and Sioux Falls, South Dakota, adding only 31 more subscribers through its group-buying scheme. Vivabox, meanwhile, a Belgium-based company that sells custom gift boxes, recently pushed a $19 sampler of magazines including National Geographic, Fast Company, Real Simple, and InStyle — and was rewarded for its efforts with only four (yes, four) takers.

“That doesn’t surprise me,” says Louisville’s Crutcher. “What makes [Groupon] work,” after all, “is its localness.” New York magazine’s Sheldon, formerly the finance director at Time, agrees. Bigger brands, he notes, are stuck trying to push national titles into regional pegs. “If you pick any random Time Inc. title, it doesn’t feel like it’s a special city promotion.”

The power of the social deal has given rise to efforts like Try It Local, the Louisville chamber of commerce’s group-discount site. While the service lacks, for the moment, Groupon’s robust subscription list, it offers businesses a bigger cut of the revenue – about 70 percent.

That improved business proposition may be necessary for group-discounting to offer long-term benefits to magazines. Even the publications that have gained subscribers, in the short run, from Groupon are waiting to see whether the benefits translate to the long term. Future renewal rates will be crucial data points. “It’ll be two or three years before we really know what the effect is on magazine subscriptions,” Cutcher says. In the meantime, publishers are left with a challenging balancing act: spreading their products to new customers while retaining the value of their brands.

May 04 2010

14:00

Moderating declines: Parsing the NAA’s spin on newspaper circ data

Newspapers could borrow a line from a recent Dilbert comic strip: “We’ve been doing great since we redefined success as a slowing of failure.” Or perhaps it was the other way around, and Dilbert creator Scott Adams was inspired to write that line in a recent strip by the inventive terminology of newspaper executives describing “sequential improvement” and “moderating declines” in their revenue trends despite continuing losses in the double digit range.

Currently, the industry is reporting first-quarter earnings, and last week the Audit Bureau of Circulations released unaudited “publisher’s statements” reporting paid circulation for the six months ending March 31. The numbers are down, but the spin is up.

On the circulation front, the Audit Bureau of Circulations reported that circulation fell 8.7 percent on weekdays and 6.5 percent on Sundays, among newspapers filing publisher’s statements. This compares with drops of 10.6 percent weekdays and 7.6 percent Sundays for the prior six-month period, enough of an improvement for Newspaper Association of America CEO John Sturm to declare that “the data indicates the declines are moderating.”

Actually, it’s hard to discern real moderation in the rate of decline. The losses in the most recent period are indeed a bit less severe than those in the prior (Sept. 30) period, but they are worse than the drop in the period before that, or in any previous period. If we ignore the Sept. 30 data as an outlier, we actually have a trend that’s been worsening steadily for the last six years:

Nothing about that final uptick indicates that it’s a reversal of the trend — it would take two or three periods of “improvement” in the form of “moderating declines” to make that a valid conclusion. In fact, both of the upticks in the trendline disappear if we take the statistically reasonable step of averaging spring and fall six-month circulation changes into annual figures and graphing those:

Moreover, viewed in long-term context, this latest minor slowdown in the rate of decline disappears entirely when newspaper circulation is viewed in the context of population: Since 1945, the number of papers sold per 100 households has dropped steadily, declining in 61 of the last 64 years.

(The circulation numbers on which this chart is based come from Editor & Publisher via NAA; E&P hasn’t released its Yearbook with a 2009 figure, so 2009 is my estimate based on the last two ABC cycles and estimated census households.)

It’s also quite possible that the uptick is entirely the result of some of the new options newspapers have in counting their circulation. Some of the declines of the past few years have come from ditching distribution in unprofitable outlying areas, and cutting back on “third-party” programs in which advertisers were persuaded to pay for bulk distribution, free to recipients, at community events or door-to-door in targeted areas. The value of this circulation was always questionable, but now ABC rules are permitting substitution of new forms of questionable circulation.

Take, for instance, the Bend (Ore.) Bulletin, where weekday circulation grew 34.3 percent. How? Since Jan. 1, with ABC approval, the paper has been counting e-subscriptions sold to current print subscribers for an extra 50 cents per month. As long as the subscriber can choose to opt in or out of the added digital subscription, the e-subscription counts as one paid subscription in addition to the printed one, even if the customer never accesses it. Applying this stratagem for only three months of six-month reporting period, the Bulletin tacked 12,462 weekday e-subs to its “core” print circulation of 29,072 (which is actually down by more than 1,000 from 30,155 a year ago). And next time around, counting the e-subs for six full months, it expects to report circulation of about 54,000.

How much of that is going on, and to what extent is it responsible for that uptick? I haven’t delved into the data, but Paid Content did, and reported that e-edition circulation was up significantly: the digital editions of the top 25 newspaper e-editions rose 40 percent, from to 1,363,212, versus 973,721 a year earlier.

There’s are other questionable figures being circulated, as well. In his statement on the ABC data, Sturm also cited readers-per-copy data that appears, at first glance, to mitigate the downward trend in copies sold: “Newspaper print products are also finding their way into more people’s hands, with readers-per-copy increasing by 7.5 percent in just the last three years to 3.3 adults on average, according to a recent analysis from Scarborough Research and Newspaper National Network LLP.” Here’s the graph:

Missing from this statement is the important qualifying statement that the Scarborough study applies to 25 selected “top markets,” not to all newspapers.

For its report (PDF download), Scarborough chose the 25 largest newspapers omitting “national” newspapers (New York Times, Wall Street Journal, and USA Today), as well as omitting papers in the midst of major circulation pattern transitions (Denver Post, Detroit Free Press, Philadelphia Inquirer, San Jose Mercury-News, Seattle Times and Seattle Post-Intelligencer).

In response to email inquiries, NAA’s research director Jim Conaghan and communications chief Jeff Sigmund defended Sturm’s statement. “He correctly cites the Scarborough research,” Conaghan wrote. “John Sturm’s statement references research conducted by Scarborough which was based on an analysis of the top 25 markets,” Sigmund wrote. But Sturm’s statement leaves out the important qualifier of the 25 markets. Conaghan also wrote to me: “You need to carefully read what is contained in the Scarborough report. Large markets/papers, survey data. The old NAA estimates were derived by a different method, and would represent total U.S.” By “old NAA estimates” he meant a 2007 report available at the NAA site that found 2.128 readers per copy weekdays and 2.477 on Sunday. (That study, in a footnote, discounts the validity of the Sunday number, stating: “Projection relatively unstable for Sunday RPC. Use with caution.”

Now, as that quote suggests, readers-per-copy (a.k.a. the “pass-along rate”) is a notoriously difficult thing to measure. But it has been tracked by Scarborough and others for a very long time and has been pretty consistently cited (and drilled into the heads of newspaper advertising representatives) as being around 2.3, plus or minus a point or two. This allowed salespeople for a 30,000-circulation newspaper to tell retailers that readership was actually about 75,000. The readers-per-copy factoid was included for years in NAA’s own “Facts About Newspapers,” a vest-pocket sized booklet of data distributed annually to advertisers and publishers. In 2000, Facts About Newspapers claimed 2.1 readers per copy, and 2.2 on Sundays. In 2004, it was 2.3 on weekdays, 2.4 on Sundays. In 2007, as cited above, it was 2.1 weekdays and (with a grain of salt in the NAA footnote) 2.5 on Sundays. When I started in the business, in the late 1970s, I recall that it was 2.6. In 1983, Scarborough and Simmons both came up with about 2.7, but that was noted as seeming to be on the high side. The average U.S. household is about 2.57 people, another reason why any reader-per-copy finding above that level is questionable. I think Conaghan is right on the money to say that Sturm’s claim of 3.3 can not be applied to any markets outside the those selected 25 and that reality is still in range of 2.2 to 2.5 as it has been for 50 years.

Sturm also pointed to the online newspaper audience, stating: “The latest Nielsen Online data found that newspaper websites attracted a record 74.4 million unique visitors per month on average in the first quarter of 2010 — more than one-third (37 percent) of all Internet users.” Left unsaid: the monthly UV average for this quarter was probably boosted in February by traffic related to the Olympics. The February UV count was 76.1 million, an all-time high. In March, with 10 percent more days than February, UV’s were 5 percent lower at 72.1 million.

But everyone knows by now that UVs are not a very good indicator, and “time spent on site” is what counts, at least if you’re trying to sell advertising. By that score, Q1 did not shape up very well for newspapers: in January, the average visitor spent 33:09 minutes at newspaper sites, in February, 29:06 minutes, and in March 32.21 minutes. These are three of the four shortest attention spans recorded by Nielsen Online for NAA since January 2004 (with the caveat that data before June 2009, which showed significantly higher times spent, was based on a different survey sample and can’t be compared with later stats).

Here’s the trend line for attention, or time spent, at newspaper websites since the June 2009 methodology change.

When that trend starts to demonstrate clear and strong “sequential improvement,” newspapers will have something to shout from the rooftops.

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